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Executives

David Oddo – Vice President, Finance

Kurt C. Hall - Chairman of the Board, President & Chief Executive Officer

Gary W. Ferrera - Chief Financial Officer & Executive Vice President

Analysts

James Marsh – Piper Jaffray

James Dix – Wedbush Morgan Securities, Inc.

Richard Greenfield - Pali Research

Scott Barry – Credit Suisse

Benjamin Mogil – Thomas Weisel Partners

Hunter Dubose - Morgan Stanley

National CineMedia, Inc. (NCMI) 2009 Outlook Call January 29, 2009 5:00 PM ET

Operator

Welcome to the National CineMedia, Inc. 2009 outlook conference call. Just a quick reminder today’s conference is being recorded. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for your question. At this time I’ll turn things over to our host, Mr. David Oddo, Vice President of Finance with National CineMedia.

David Oddo

I’d like to remind our listeners that this conference call contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended.

All statements other than statements of historical facts communicated during this conference call may constitute forward-looking statements. These forward-looking statements involve risks and uncertainties. Important factors that can cause actual results to differ materially from the Company's expectations are disclosed in the risk factors contained in the Company's filings with the SEC. All forward-looking statements are expressly qualified in their entirety by such factors.

Now I'll turn the call over to Kurt Hall, CEO of National CineMedia.

Kurt C. Hall

Welcome and thanks for joining us to discuss our 2008 guidance update and our preliminary outlook for 2009. Today we will update our 2008 full year guidance given during our last earnings call and provide you with some insight into how we are thinking about our business for 2009 so that the investment community and analysts can update their financial projections. We will then open the line for your questions.

Despite the difficult current economic environment our business has shown solid growth in the second half of 2008 and is off to a good start in 2009. While we are cautiously optimistic about our prospects in the first half of 2009 as we have a reasonable amount of visibility there is still a significant level of uncertainty about when the economy will begin to recover.

While we are hopeful that the economy will begin to recover late in the year we have planned the second half of the year more cautiously as we are coming off much more difficult national advertising comps with 2008. Before discussing 2009 I would like to take a minute to update you on our expected results for 2008.

While we have not yet completed our audit we are comfortable that we will be at the top or even slightly exceed the 2008 annual revenue and adjusted OIBDA guidance given in early November. Just to remind everyone our guidance was for revenue of $364 million to $368 million and adjusted OIBDA of $184 million to $187 million.

This annual guidance represents a 13% to 17% increase in Q4 revenue over Q4 2007 and a 10% to 16% increase in adjusted OIBDA over Q4 2007. We should note that this updated revenue and adjusted OIBDA guidance is after considering the effects of the year end make good adjustment and thus represents a slight increase from our previous guidance that excluded the potential effect of those make good adjustments.

These slightly better than expected Q4 results reflects the strong performance of our national advertising business relative to the overall advertising market and higher than expected Fathom revenue offset by lower than expected local advertising revenue particularly late November and December. We also had a lower than expected year end make good adjustment related in part to a strong box office during the extra 53rd week.

We continue to work on our year end audit and will provide more detail on 2008 in early March including a discussion of net earnings and certain non-cash charges related to our ineffective swap agreement with Lehman Brothers and possible impairment to our investment account. In light of our expected Q4 2008 results as disclosed earlier today our Board has approved a Q4 dividend that is consistent with the previous quarter of $0.16 per share.

Turning to Q1 2009 we expect total revenue between $66 million and $71 million representing a 5% to 13% increase over 2008. We expect adjusted OIBDA between $21 million and $24 million representing a 1% to 16% increase over 2008. This outlook does not reflect any potential make goods generated during the quarter. While this guidance represents good growth over 2008 particularly in light of the weak advertising environment.

We should note that the first quarter of each year has historically represented our lowest revenue and adjusted OIBDA quarter. Some of the factors contributing to this expected revenue and adjusted OIBDA growth in Q1 2009 include an increase in non-content national scatter revenue associated with our broader national network and the related increase in saleable impression and slight increase in our annual content partner allocations to Q1.

We continue to see strong support from traditional national advertising categories such as entertainment, military and import auto and continue to expand our client base most notably in the tourism and retail categories. While our Q1 will benefit from growth in our high margin national revenue we expect these gains to be partially offset by an anticipated decrease in local revenue compared to Q1 2008.

While our local advertising business is benefiting from the expansion of screens in our network it has begun to be adversely affected by the current recession. As mentioned in previous calls we are also expecting a decrease in our beverage revenue as all three of our founding members are now only acquiring 60 seconds to fulfill their on-screen marketing obligations to Coke.

I’m very pleased with the way that 2008 ended and 2009 has begun especially relative to other media platforms. While I’m cautiously optimistic that our good start to 2009 is indicative of the quality of the cinema marketing platform there are still a lot of economic issues that are adversely affecting many of our clients.

Despite these market issues given the increase in our 2009 pre-bookings I am hopeful that as marketers are more cautious with their spending they will place more focus on media platforms like cinema where they know their ad will be seen and will create impact. I’d like now to turn over the call to Gary to provide some additional insight into 2009 outlook.

Gary W. Ferrera

Looking ahead for the full year 2009 we expect total revenues to be up slightly over our full year 2008 guidance but adjusted OIBDA to be in line with our 2008 guidance. As adjusted OIBDA margins are expected to be slightly lower primarily due to the reduction in our high margin beverage revenue slightly offset by tight personnel and other cost controls including a deferral of 2009 officer raises.

These deferred raises will be paid as part of the 2009 bonus should our adjusted OIBDA targets be exceeded. While our 2009 outlook assumes that the economy and the broader advertising market will start to recover in the second half of 2009 we have planned for most of our 2009 revenue growth to be in the first half.

This is due to our greater visibility into the first half and that second half national advertising comps are much more difficult. Similar to guidance provided for 2008 our Q1 and full year 2009 guidance does not reflect the potential for any make goods.

Additionally some factors that have made us more cautious with respect to our 2009 second half planning include the following, as mentioned previously our beverage revenue will be lower which will have a greater impact on the second half through the higher attendance in that period.

While we are hopeful that some of this lost revenue will be made up through the sale of this additional national inventory to other clients it is likely to only create incremental revenue in a few months where inventory utilization is at sell out levels. In 2008 approximately two thirds our content partner revenues were allocated to the second half of the year versus 2009 where we expect only about half of the content partner revenue will be spent in the second half.

However this is partially offset by the greater amount of scatter market bookings we have for 2009 versus 2008. Our local advertising business continues to slow and we’re planning for low single digit negative growth for all of 2009 as same screen local advertising revenue will decline but we expect this decline to be mostly offset by new screen growth. We are planning for local revenue decline in the first half with very modest growth in the second half.

Our meetings and events business particularly Fathom has shown significant growth in revenue in 2008 due primarily to the expansion of our live event network and the success of more diverse events. We are expecting lower revenue growth in 2009 as the expansion of our live network has begun to level off. Lastly fiscal 2009 includes only 52 weeks versus 53 weeks in fiscal 2008.

This will obviously create a challenging comp for Q4 as the 53rd week in fiscal 2008 was one of the highest attendance weeks ever. Despite these challenges which we have factored into our outlook our business seems to be performing very well relative to many other advertising platforms. We had a strong finish to 2008 and a good start to 2009 and we are confident that due to the strength of our medium we are very well positioned for the future as the economy recovers.

Factors that we believe will provide benefit to 2009 and beyond include the following. In 2008 we added three large circuits to our network with the addition to our digital network of Kerasotes in early Q2, Hollywood in Q3 and the integration of AMC Loews during the June to November 2008 run out period with screen [inaudible].

This added nearly 100 million new attendees on a full year pro forma basis representing approximately a billion new saleable advertising impressions. As our sales force at several months in 2008 to integrate these additional impressions into the sales process the yields on these attendees should be higher than in 2008. In addition we believe that these new circuits will strengthen our selling proposition in comparison to other national advertising platforms.

As our content partner commitments are more heavily allocated to the first half of 2009 than they were in 2008 it provides the availability of more scatter inventory during high utilization advertising [inaudible] the majority of which are in the second half of the year. Most importantly we continue to be encouraged by the up front commitments for 2009 that are significantly ahead of those for 2008.

For 2009 we currently have approximately $53 million in total scatter commitments versus only $21.9 million of similar advertising commitments the same time last year. While some of these commitments are partially cancellable with 90 to 150 days notice the majority of these commitments are firm with no cancellation rights.

You should note that these commitments exclude our content partner commitments, cell phone PSA and beverage commitments which in aggregate are expected to generate higher revenues than in 2008. Including all of our national advertising categories but excluding beverage we currently have commitment for approximately 60% of our 2009 national advertising target versus approximately 40% in 2008.

That concludes our prepared remarks and we’ll now open up the lines for any questions you might have.

Question-And-Answer Session

Operator

(Operator Instructions) We’ll pause for just one moment. We’ll go first now to James Marsh – Piper Jaffray.

James Marsh – Piper Jaffray

Two quick questions here, one on a non-ad side I was just wondering if you could give us a better sense of what those growth rates look like as we go into 2009 on the media event side? Then I have a follow up.

Kurt C. Hall

We aren’t giving out any of that information at this point. We will talk probably in more detail at our call in March.

James Marsh – Piper Jaffray

As you look into the back half of the year, could you give us an idea is it mostly utilization or is it mostly rate? How should we think about modeling this? Is it that rates are largely flat and utilization is slightly down?

Kurt C. Hall

From a rate standpoint we’re not anticipating significant rate increases this year for a couple reasons. First of all the economy obviously will have an effect on that. With television being a bit of floor on our rates and there continuing to be pressure on CPMs and television we expect that will affect our rates a little bit.

We’re clearly also primarily focused on building utilization and expanding our client base and if you think about expanding our client base, what kind of clients will we be focused on? It’ll be primarily clients like P&G and others that generally buy in volume but generally buy for a lower CPM than many of the other clients that we deal with.

So the mix is going to be a little bit different for us I think in 2009 than in 2008 and that should cause a bit of a flat CPM. As far as the second half of the year our utilizations in the second half of the year are pretty high to begin with so with the incremental impressions that we’re going to be bringing on for this year we’ll have lows for instance for the complete second half of the year when we only had it really for the month of December 2008 clean.

The rest of the time it was obviously not a clean inventory as we were going through the run out period with Screenvision. If we can maintain our utilizations rates in the second half with the incremental impressions, that’ll be a good day.

James Marsh – Piper Jaffray

Then I have one last follow up relative to the beverage comments that you guys made and I think you said now you’ll only be running 60 seconds worth of Coke. What were you running before and does that step down at another date as well below 60?

Kurt C. Hall

No, the answer is that all the circuits now have redone their agreements with Coca-Cola we believe and we believe they’re pretty long term agreements, they all call for 60 seconds. We don’t see any step downs coming any time soon, none that we know about and I don’t expect it for several years if there is any at all.

As far as last year for the entire year Regal bought 60 seconds from us and the other two circuits bought 90 so the difference if you do all of the math I guess is what, 15%, 18% difference or something like that in beverage revenues.

James Marsh – Piper Jaffray

Year-over-year?

Gary W. Ferrera

Yes, Regal was probably something like 40% of the impression give or take and the other two together total 60% so those go away for that one unit but then you’ve got about an 8% CPM.

Kurt C. Hall

Yes because the contractual arrangement calls for an 8% increase in CPMs this year. It’ll be 6% the following and 6% the following year after that.

Operator

We’ll go next now to James Dix – Wedbush Morgan Securities, Inc.

James Dix – Wedbush Morgan Securities, Inc.

I had three questions. First, if you pro forma in a full year of lows, is your guidance for ’09 roughly flat on revenue to slightly down? I can ask the other two now or I can do it as follow ups, however you would like.

Kurt C. Hall

Let’s just handle that one. We don’t really look at it because we don’t allocate revenue to a specific circuit. When we do a national contract it gets spread across all of our circuits so you can’t really look at it and relate revenue necessarily. The math if you will CPMs being consistent year-over-year, if you increase your impressions, which Loews obviously does, and your revenue stays the same that means your utilization of all your impressions has dropped.

That would just be the math. That’s the way you need to look at it, is think about all of our impressions that we have and how much revenue are you going to generate across all of those impressions. My last comments you can sort of get from that. We are going to be focused during this year predominantly on utilization and we think that the growth obviously in the first quarter that we’ve talked about already will come from increased utilization predominantly.

We expect during the year that’ll be the thing we continue to focus on.

James Dix – Wedbush Morgan Securities, Inc.

My second one was your first quarter guidance is a little above what I was expecting. I gather some of that relates to the factors you talked about. Any comment you have on the quarterly seasonality you expect for revenue and EBITDA for the rest of the year?

Kurt C. Hall

I don’t think we’ll see any big changes in the seasonality that we’ve seen in the past. I think first quarter historically has been a bit of a swing quarter, the variations or volatility of cash flow revenue is highest in the first quarter because the revenue is the lowest. Obviously on a percentage basis $1 million or $2 million changes are fairly big percentage changes.

We saw that back in 2007. We had a great first quarter. Obviously 2008 wasn’t as high as that although it was quite a bit higher than ’06. We’re having a good first quarter. We’ve brought some new clients in and we continue as we mentioned to get very high demand from import auto and a few of the other traditional categories.

Gary W. Ferrera

All it takes, James, is one contract difference in Q1 to make a big difference.

Kurt C. Hall

Yes.

James Dix – Wedbush Morgan Securities, Inc.

Okay. So you’re not seeing any big swings for the other quarters in part because it’s harder to move them one way or the other?

Kurt C. Hall

Look, we made the comment of third and fourth quarter comps were more difficult. Last year as you all well know first and second quarter were a bit soft for us especially second quarter. We have much more visibility in the first half of the year and obviously we’re being a bit more bullish because of that visibility in the first half.

James Dix – Wedbush Morgan Securities, Inc.

My last one just relates to your margin. Any way of giving a little bit of sense of where the revenue is coming from and what margin rates you’re seeing on that? Because I guess one reason for 2009 EBITDA being flattish is a little bit more shift to non-beverage revenue obviously from the higher margin beverage. Any color you could provide on the buckets of revenue and the margin you see for them, founding members versus affiliates?

Kurt C. Hall

I think what you should assume is, is that obviously our 100% margin revenue related to beverage is going to decline as we talked about that. If you just make that one adjustment our margins actually could be a little up year-over-year. I think that is the main factor affecting our margins. I don’t see any other mix issues. Clearly we’ve told you that the local revenue was going to be down a little bit so it as a percentage of total will be a little lower.

That helps make up for a little bit of the margin decline related to beverage because national revenue has a much higher margin than local revenue. I think at the end of the day the primary factor or the primary driver of the small margin decline is the beverage.

James Dix – Wedbush Morgan Securities, Inc.

So the mix between affiliates and founding members, it doesn’t really account for much of the difference?

Kurt C. Hall

Affiliates will go up. Obviously we’ve added two new affiliates. They’ll have a full year effect in ’09 where they only had a partial year effect in ’08 related to Kerasotes and mostly Hollywood. The affiliate expense will be higher but our national revenue has made up our increase in non-beverage national revenue has made up for that.

Operator

We’ll not next now to Richard Greenfield - Pali Research.

Richard Greenfield - Pali Research

Couple questions, one when you look at box office or attendance more importantly for 2009, it looks like we’re off to a pretty strong start given the underlying attendance times where movies that seemed relatively poor movies seem to be doing better than expected. Mall Cop’s a great example.

When you look at what’s going on in the economy obviously people need a release, people need something enjoyable and the movies seem to be benefiting and just trying to understand when you look at your guidance for a modest increase in ad revenue, is there an underlying assumption in there that you actually think attendance is going to be up year on year?

How do you think about attendance? Because it just seems like we’re in for a much better than one would normally think attendance year especially after a pretty decent year the way everything worked out last year. It just seems like that’s going to help you. I’m wondering how you’re thinking about that and the impact on your business?

Two, Thompson earlier today basically said that they’re about to breach covenants and they’re in pretty significant distress and Screen Vision is now actively for sale and wondering whether anything has changed in terms of your appetite to own that asset at the right price looking out over the next couple of quarters?

Kurt C. Hall

The answer to the first question is obviously we are off to a very good start. I think theater business has proven over the last several months to be if not recession resistant, clearly there’s some factors in there that are helping it and it would seem to indicate that there is some resistance to the recession there.

People are looking for lower cost forms of out of home entertainment. I think they’re staying closer to home. All those things I think are positively affecting it. We could debate whether the movies are good or bad. Having been in the theater business for a long time, as far as I’m concerned any movie that does business is a good movie. It’s hard to make value judgments on those.

We’re looking at pretty flat numbers for the year. We never really try to estimate where the overall theater business is going to go up or down. It really doesn’t affect our business all that much. 1% or 2% or 3% increases or decreases in attendance, while they obviously will have big impacts on the theater business P&Ls, they don’t have that significant an impact on our business.

Richard Greenfield - Pali Research

Maybe a better question to ask then is when you look at your make goods over the course of all of 2008, attendance was better and eliminated a good chunk of your make goods in 2009. What would that actually mean? How much dollars would we be talking would be eliminated in that case?

Kurt C. Hall

The interesting thing, Rich, is that make goods are really generated by how the box office does in the last month of each quarter. Because if there is a positive or negative surprise in that last few weeks or last month of a quarter, that’s what generates make goods generally. Because we’ve contracted to deliver so many impressions, usually if we under deliver in say October and November we’ve got enough time to make that up throughout the quarter.

If you under deliver in December you’ve run out of time. This year as we noted in our comments the 53rd week helped us out because it came in at a big surprise, it was a much higher attended week than anybody expected. In fact I’ve heard quotes in the market that it was the second largest attended week ever in the history of the business next to the Batman week earlier in the year in the summer.

Those are the factors that really affect the level of our make good at the end of any quarter or any year. Because we always enough inventory sort of intra quarter, if you will, or intra year to make up for those shortfalls during any given period.

Richard Greenfield - Pali Research

Secondly on the Screenvision?

Kurt C. Hall

I’m always interested in looking at attractive or accretive acquisitions. As we’ve talked about before we are primarily focusing on bringing on new circuits as our growth strategy with respect to advertising impressions and growing the breadth and size of our network. The answer really hasn’t changed. I haven’t actually heard that Screenvision is for sale so you must have heard something I didn’t.

Richard Greenfield - Pali Research

Thompson said it on their conference call today.

Kurt C. Hall

Did they? I didn’t hear their conference call. For Thompson it’s a little more of a complicated issue because as you well know they don’t control 100% so unless ITV is of the same mind, it’s a little difficult for the asset to sell and as you well know it’s a hard to go out and sell 50% of something.

Operator

We’ll go next now to Scott Barry – Credit Suisse.

Scott Barry – Credit Suisse

Kurt, given that consensus ad forecasts for this year are down roughly by single digits and the commentary you made about your significant increase in national ad commitments, maybe you could just touch on what kind of feedback you’re getting from the client base on what’s causing that, what they’re talking about in terms of your value proposition, where you think those dollars are coming from?

Kurt C. Hall

The dollars are coming from some of the traditional categories although as we mentioned we brought on two or three pretty big and new clients in the first quarter which has helped. The commentary we’re getting is that I think people see cinema as a way to make sure their ad is getting seen. It may be what we’re seeing in the marketplace is that in these tighter times when people are spending money they just want to make sure that their ad is having impact.

Some of these other mediums that have fallen under question over the last several quarters or years, newspaper, radio, there’s been quite a few of these what I’ll call traditional non-digital mediums that are having more significant issues than other mediums. But it may be that we’re seeing that transition from non-digital to digital. It’s being exacerbated or exaggerated by the issues affecting the economy.

People are going to spend money, they want to make sure their ad has impact and I think cinema it’s a little hard to argue that your ad’s not being seen. We know it’s being seen and we know it’s creating impact if you create a good ad. I think that’s some of the feedback we’re getting.

I think with respect to the up front bookings and the level of them I think now that we’ve been at this for a number of years, those people that want to include cinema as part of their overall plan, now know that during several periods of the year they need to get in there and get their commitments made early or they get shut out.

As we talked about on our last call the month of May this year happened to be a particularly busy month for import autos to launch new cars and we actually had more demand, if you will, than we could handle from people that were launching new cars. I think that there are certain sectors that are staking out their territory now earlier because they’re hearing us talk about being sold out and the amount of inventory that’s available during some of these high peak periods is not much.

I think we are just now more and more a part of people’s ordinary media plans for the year and they’re making up front commitments just like they do with television.

Scott Barry – Credit Suisse

How about some of these initiatives that you put in place to introduce more flexible and integrated buying opportunities?

Kurt C. Hall

They’re actually starting to bear some fruit. We’re getting a few clients that are coming to us on a last minute basis, if you will. Obviously those deals carry lower CPMs, they’re sort of remnant deals, if you will, and so we’re glad to sell the inventory on a last minute basis at a lower CPM. That I think is starting to bear fruit and we’re still out there working on a committed deal for the year that would be last minute where somebody commits a certain amount of dollars.

We haven’t got one of those put in place although like I said we’re starting to get quite a meaningful amount of revenue in the last minute category. It all takes time and every client that we eventually do business with is 10, 20, 30, 40 meetings sometimes before they get on board. I think some of what you may be seeing now is the fruits of all the sales efforts over the last four or five years.

People are starting to now believe in it and then they’re starting to make the investment.

Scott Barry – Credit Suisse

Gary, do you have a ballpark cap ex number?

Gary W. Ferrera

For the next year, what I can say is basically I think what we’ve told people is we think that our normal run rate cap ex is around $8 million to $10 million, that’s excluding any affiliate deals. Obviously last year we had a couple of affiliate deals. Right now we don’t have anything in the works. We usually announce those and tell you how much those are per screened. I would just assume the base of the $8 million to $10 million.

Operator

We’ll go next now to Benjamin Mogil – Thomas Weisel Partners.

Benjamin Mogil – Thomas Weisel Partners

Couple questions, in terms of better numbers that you’re looking for for the first quarter, was there any sort of material bundling that you did getting advertisers that wanted fourth quarter inventory to also pair that with purchases in the first quarter?

Kurt C. Hall

No, none of that. We obviously had a little bit of a make good liability which we always do that came over from fourth quarter that’ll be played out in first quarter. That’s not really bundling. People that make long term multi-flight commitments, that really isn’t done on a bundled basis per se. They just pick months or periods of time when they’ve got marketing priorities and they’re buying the time from us.

Benjamin Mogil – Thomas Weisel Partners

Can you give us what the make good balance was at the end of 12/31 or is that not allowable yet?

Gary W. Ferrera

We’re going to wait until March to do that.

Benjamin Mogil – Thomas Weisel Partners

On the capital structure front, should we be looking for lower interest expense this year just because of LIBOR coming down?

Kurt C. Hall

Yes, a little bit, but as you know we’ve swapped out an awful lot of our debt. Obviously on our revolver which is not swapped out and $150 million, $175 million of our term that’s not swapped out. We swapped out 75%.

Gary W. Ferrera

75 % of the term loan is swapped. Obviously we’re fully drawn on the revolver also and we hold that and we don’t make up quite the difference in interest income for holding it due to the whole issue with Lehman and the revolver. We’re keeping a much higher cash level but also the revolver outstanding.

Benjamin Mogil – Thomas Weisel Partners

You drew against the full $121 million on the revolver?

Gary W. Ferrera

The full revolver had Lehman been available for all of it would be $80 million. We’re about $74 million.

Kurt C. Hall

We went into a lot of detail, I think Gary did on our last call that Lehman failed to fund $6 million of the revolver so we have $74 million drawn now, but we also have much, much higher cash balances than we’ve ever had in the past and we thought it was prudent to given what with the uncertainty going on that we draw the revolvers.

Benjamin Mogil – Thomas Weisel Partners

Understandable given the environment that you obviously didn’t mind having a negative interest spread for a while. How long do you want to keep that?

Kurt C. Hall

A lot of it will be how long do the financial markets stay where they are. The problem we’ve got is that if we make any repayments under our revolver right now, Lehman gets a portion of those but by mathematical equation obviously our revolver goes down, our revolver availability because the chances of getting that money back from Lehman on a future revolver draw are zero.

Unfortunately and I’m sure a lot of other borrowers have the same problem, the way these revolvers were structured in the agreement don’t allow you to, if somebody lends you money in the revolver group, you just pay them back, you have to pay everybody back pro rata. For the foreseeable future we’ll be fully drawn and we’ll just continue to accumulate cash balance.

Benjamin Mogil – Thomas Weisel Partners

I know what you want but given the environment that’s obviously the correct thing to do.

Kurt C. Hall

The negative [inaudible] for us is not a lot of money a year so it’s well worth it.

Operator

We go next now to Hunter Dubose - Morgan Stanley.

Hunter Dubose - Morgan Stanley

Kurt and Gary, you cited the drop off in beverage revenues for 2009 as the rationale for guiding towards slightly lower margins but thinking about your business model, if revenues are going to be flattish to slightly up given that there’ll be an increase in the average number of founding members screened and each of those has effectively a fixed cost for the year through the exhibitor services agreement, wouldn’t that also lead to some margin compression?

Kurt C. Hall

Not really because if the number of attendees from those guys go up, the beverage goes up and the theater access fee goes up. Clearly the margin compression we’re talking about related to beverage is that. That’s what we’re citing as the problem. Did I miss something?

Gary W. Ferrera

Yes, your access fee and beverage revenue go hand in hand because they move with the attendance.

Kurt C. Hall

This year obviously the beverage is coming down. Some of that revenue decline is obviously being replaced by just regular national advertising revenue and while the margin is also very high, it’s not 100%.

Hunter Dubose - Morgan Stanley

Maybe I didn’t quite make my question clear, but what I was basically saying is if this whole number of screens increases but you’re selling the same amount of advertising as you did last year, don’t the fixed costs associated with that actually go up?

Kurt C. Hall

Yes.

Hunter Dubose - Morgan Stanley

Was your revenue base actually not going up?

Kurt C. Hall

Our revenue base is going up.

Gary W. Ferrera

The per screen amount, Hunter the dollars as you do the math when you do it on a per screen versus an attendance basis is a very low number. A very small percentage of the [inaudible].

Hunter Dubose - Morgan Stanley

My second question is, can you walk us through what the immediate practical consequences would be of a founding member acquiring National Amusements for you guys?

Kurt C. Hall

It depends I guess a little bit on whether it’s an asset deal or a stock deal. Let’s just assume that it’s an asset deal. I would just assume that those theaters would come into the founding members and we would immediately get access to them. In fact that same thing happened when Loews was acquired by AMC and Regal actually bought one of the New York theaters previously owned by Loews.

Even through Loews was under contract with Screenvision, because the contract didn’t go to specific assets, we got it immediately. So I’m assuming that’s what would happen under this circumstance but we have no information to lead us to believe that that’s going to happen and I don’t know what the agreements say and maybe the National Amusements agreements go to each individual theater. I don’t know.

Hunter Dubose - Morgan Stanley

Can you comment on the extent to which the National Amusement screens might plug any gaps in your national footprint?

Kurt C. Hall

Clearly if they were to sell New York and Boston which I guess are the two biggest markets National Amusements operates in, that would strengthen our position there. I wouldn’t characterize it as plugging a hole because we’re very strong in those two markets already. The only top 50 market we’re not in is Memphis and National Amusements is not in Memphis so it doesn’t plug that hole.

Cincinnati, yes it makes us a little stronger there, that would be a good add. Again it’s not clear based on what I’ve heard in the marketplace what is going to be sold or not be sold or how it’s going to be sold so it’s a little premature to be thinking about that.

Hunter Dubose - Morgan Stanley

My final question is can you comment on some more detail about the macro economic assumptions that are going into your current guidance? In particular how much worse would things have to get for the low end of your guidance to come under pressure?

Kurt C. Hall

Which guidance, the first quarter?

Hunter Dubose - Morgan Stanley

For 2009 as a whole.

Kurt C. Hall

As we’ve said we’ve got a lot more visibility in the first half than the second half. There’s a ton of debate out there about when the economy is going to turn. We’ve come out with guidance just because of the up front bookings, they’re one of the things that’s led us to this guidance was the level of up front bookings that we have and the amount of money that we would actually have to raise to go out and achieve our target which is a lot lower number percentage wise than it was last year at this time.

Gary W. Ferrera

Just to reiterate, we’re booked 60% this year versus 40% last year.

Kurt C. Hall

If you think about that to achieve our target we’ve got to go out and get a lot less money in the scatter market than we did last year and even the scatter market is softer than last year because of the economy, we’ve still got a really good shot at achieving our internal goal. I don’t know if there’s any other way I can characterize it than that.

Operator

Gentlemen, it appears we have no further questions this afternoon. I’d like to turn the conference back to you for any closing or additional remarks.

Kurt C. Hall

Thanks everyone for your support. We’ll be talking to you again in the first couple weeks of March once we release our earnings and we’ll update you on obviously more detail on 2008 and update you on 2009. Thanks for all your support and we’ll talk to you soon.

Operator

Ladies and gentlemen, that will conclude today’s National CineMedia conference call. I’d like to thank you all for joining us and wish you all a great afternoon. Good bye.

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Source: National CineMedia, Inc. 2009 Outlook Call Transcript
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